Below you will find four different scenarios. Each one represents a different quarter of the year with the initial situation representing the first three months of the calendar year. Your goal is to help keep Gross Domestic Product positive as high as possible, inflation low and stable, and unemployment low and stable.
I am asking you to take on the role of Ben Bernanke, Chair of the Federal Reserve System. There will be many statements in each of the quarters. As you make your decision to raise, lower, or leave the money supply the same you should be specific about why you chose that particular action and what impact you believe it will have. Each quarter has a new set of situations and they don't build on the previous quarter.
I would guess you will need to probably write a paragraph to defend your actions for each quarter of the year. It's not enough to just say "lower the money supply" you must have solid reasons and you must be able to accurately predict the outcomes of that decision.
Quarter One - Consumer income has been on the rise and it is predicted to rise again in the first quarter of this year. Mexico and Canada have been forecast to have a very good first quarter also with the income of their average citizen on the rise. Investment spending is predicted to remain the same this first quarter. Will you raise, lower, or leave the money supply the same and why?
Quarter Two - Inflation is on the rise. After several quarters of 1-2% increases this quarter predicts inflation to increase an additional 4 or 5%. Unemployment has dropped to all time lows in the United States. Unfortunately, our major trading partners have seen unemployment go up in their countries and expect it to rise even further in this quarter. Business spending is thought poised to decline while consumer confidence is up. Would you raise, lower, or leave the money supply the same and why?
Quarter Three - Six months of hard work have just ended. People are projected to set anew spending record. Investment spending will likely rebound as orders for manufactured goods jumped at the end of the 2nd quarter. Trade restrictions have been reduced through recent negotiations. The stock market has recorded increased trading activity and that trend will continue. Will you raise, lower, or leave the money supply the same and why?
Quarter Four (last three months of the calendar year) - Inflation is now running at 6% on an annual basis. The trade deficit has grown steadily through the year but very prominently during the last quarter. Forecasters say that if this trend continues we might see inflation end up in double digits. There appears to be no end in sight to the building that's going on and consumers have taken on a whopping amount of debt. Will you raise, lower, or leave the money supply the same and why?